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China struggles to hold back yuan appreciation

China has been inundated by foreign currency, as its trade surplus has surged to a record $600 billion-plus per month during 2021.

China’s export performance creates a massive imbalance of supply and demand for its currency. Chinese exporters are selling excess dollars to buy yuan, and the People’s Bank of China appears to be buying dollars on the open market to slow the appreciation of the Chinese currency.

In the Chart of the Day, we see that surges in dollar deposits at Chinese banks coincided with bursts of yuan appreciation in the past.

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